With all the talk of coalitions, deficits and the euro crisis, we seem to be sleepwalking into a new inflationary cycle. After nearly two decades of having inflation under control, the retail price index surged to 5.4 per cent last week.

What makes this really disturbing is that it's happening when the economy is bumping along the bottom and interest rates are very low. Now the Government prefers the consumer price index (CPI) which is more stable and doesn't include mortgage interest, but for much of the population, a measure that includes the cost of servicing mortgage debt makes RPI much more relevant.

The last time RPI took off like this was in the late 1980s at the fag-end of Nigel Lawson's chancellorship. Lawson had let the economy overheat and it took a long and painful recession to get prices under control again. This time around, policymakers know that the public finances can't cope with the necessary dampening of domestic demand which is needed to curb inflation properly; as a result they seem to be hoping that a workforce scared by redundancy will allow their wages to slip behind inflation, in effect sheltering business bottom line from rising prices. Hence monetary policy, although it will tighten, won't do so for a while.

This, though, doesn't take enough account of the fact that business itself is a consumer, as is the Government, so costs are bound to rise everywhere in the economy. In short, we are already in that back to the 1970s scenario of stagflation – tiny growth and higher prices.

But apart from getting gradually poorer, what can you do? Savings – apart from NS&I bonds linked to the RPI – aren't keeping pace with prices. Property prices will be hurt by the planned rise in CGT (see pages 96 and 97) and the inevitable rise in interest rates. Bonds have had a strong 18 months because they were oversold during the banking crisis but the growth has already happened. That leaves the stock market, which is suffering huge uncertainty due to the euro travails, but once that situation has settled then maybe it's the way to go. We are still below the share price levels of the late 1990s and the vast majority of earnings for FTSE 100 companies originate outside of the UK, meaning that it's a good hedge against the stagflation nightmare.

Scorched earth

Malfeasance in public office is defined as "wrongful conduct which affects, interrupts or interferes with the performance of official duty". I think that's a fair description of the spending decisions made by Labour in its final few months. The new Government is rightly reviewing many of these decisions – particularly those taken in the teeth of civil service advice. One contract under the microscope is with Tata Consultancy to administer the new Nests, a national pension scheme for workers. I don't know the ins and outs of the contract, but what I do know is that the Tory shadow pensions minister begged Labour not to go ahead with Nest contracts until after the election. In fact, across government, this seems to have been happening, perfectly reasonable requests to hold fire until the nation had spoken being ignored and billions we don't have spent. Of course, political point-scoring is motivating both David Laws, George Osborne into complaints but there does seem to have been a scorched earth policy. If this could be seen as malfeasance perhaps a judicial enquiry into the actions of Labour ministers is in order so that the next lot doesn't think it's right to play games with our money.

Getting with the programme

A strange thing has happened over the past few months; the Financial Services Authority has shown signs of actually doing its job properly. Not only have we had its bolshy action over the Prudential rights issue, arrests for alleged insider trading and public warnings to banks over their deliberately terrible customer service regimes, but we've also had a noticeable shift to speak in plain English. Last week, for instance, on getting hold of a list of 35,000 potential targets for boiler room scammers, Jonathan Phelan of the FSA told people to ignore an approach made to them from cold callers. He even said that the ruder the individual receiving the call is the better. It's refreshing to see such an unequivocal statement. It's just a shame that it's taken nine years, billions of pounds in admin costs, the near collapse of the Western financial system and the threat of imminent break-up to get the FSA finally focused on what it should be doing – protecting the consumer.